Why cant we get more people interested in using annuities for income? This issue has been explored in detail over the years, but no one seems to have the answer. I come to this conclusion because thousands of people are trying to answer this question, but there are no appreciable changes in the underlying result: Annuitization usage is still abysmally low.
Here are some of the reasons weve all seen for low annuitization usage:
–Clients dont want to give up “control” of their assets.
–Clients dont understand annuitization.
–Clients dont trust insurance companies.
–Clients cant change their mind later.
–Clients cant “cash out.”
–Agents wont receive any new commissions in the future.
–Agents wont receive any trail commissions.
–Immediate annuity commissions are too low.
–The population of annuity buyers is too young, theyre all in deferral.
A significant number of companies have made major changes to the annuitization methods and compensation to address issues on this list. Some of the features have been nothing short of ingenious, and yet there has been no real change to annuitization usage.
Where does that leave us? I see four possibilities. 1) Annuity buyers really are too young, we just need to be patient and theyll sign up in droves when they need the income. 2) Theres just no market for annuitization. Buyers will never come. 3) Our education of agents and buyers is not good and results will follow once we figure out how to do this. 4) Were targeting the wrong audiences. Immediate annuity buyers are different than deferred annuity buyers.
Before we delve into some of these further, I think its fair to say that no one, or even two, answers are the right one(s). Instead, its probably some combination. That said, however, I believe we should concentrate on 3 and 4.
There is just no substitute for education and training. There are also no shortcuts. Most of what agents and clients know about annuitization is wrong or misleading. The only way to have more buyers is to have better informed buyers. We must work together as an industry to get the word out on the huge advantages of using annuities for income.
The next obvious question after we decide to “get the word out” is whom do we tell? Do we tell our deferred annuity buyers? Do we tell just wealthy people, so well sell big annuities?
I dont think it makes sense to spend a lot of time educating someone who is many years away from using the annuity for income. Any of our education programs aimed at deferred annuity owners should be aimed at those likely to need income within a few years.
Aside from some deferred annuity owners, I think we should not be aiming at the “wealthy.” The wealthy will almost always have a bias toward controlling assets. Thats not to say wealthy people wont enjoy the tremendous advantage of annuitization, its just that theyll be a harder sale.
I believe the target market should be squarely aimed at Middle America, which often ends up at the forgotten end of financial services. Many companies are working hard to serve the wealthiest Americans. The middle class is often ignored.
I strongly believe that Mid-America needs annuitization and will strongly embrace it once they understand it. Mid-America is accustomed to taking retirement income in annuity form from their employers pension plans. Now that pension plans have largely been replaced by profit-sharing plans, predominately 401(k), an entire generation of middle-class Americans will be looking for a retirement payout solution that feels as safe and secure as their parents’.
This generation has always wanted it both ways. They want the growth opportunity and flexibility of 401(k)-type accumulation, but they want the security and lifetime income provisions of annuitization.
I believe the success of annuitization will belong to carriers and agents who position product, marketing, and education for Middle America. If you, as agents, do this well, your clients will have a much better retirement, and so will you.
Thomas F. Streiff, CFP, CLU, ChFC, CFS, is president of IAC Securities and Money Matters Exchange, Oak Brook, Ill. He can be reached at [email protected].
Reproduced from National Underwriter Life & Health/Financial Services Edition, June 11, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.